Artificial intelligence is set to give the global data center market a major boost, according to Jefferies, and usher in a “new era of electricity demand.” “As GPUs [graphics processing units] have become a larger part of the data center ecosystem and drive AI investments, demand for power and data center space has grown at a feverish pace,” the investment bank’s analysts wrote in a June 18 note. They noted that demand for data center space has increased between 10% and 20% each year for most of the past 15 years. “However, in the past two years, demand has exceeded 30% in most markets, with no signs of slowing,” they added. The bank said it expects data center growth to “remain robust,” but power generation constraints, supply chain issues and labor market limitations will likely curb the rate of acceleration. Data centers house the equipment needed to store and process the vast amounts of data used by computing systems, with AI-related models requiring even more data processing than traditional computing. As the data center market grows, so will demand for electricity, Jefferies said, naming a slew of beneficiaries in these segments and beyond. Favorite sectors include REITs (or real estate investment trusts), power and energy companies in the U.S., utility firms in Europe, and the global metals and mining sector. Stocks to benefit Jefferies named several stocks it sees as presenting attractive investment opportunities. Among the “pure-play data center” names it likes are Digital Realty Trust and Equinix . The former is its top pick given its “high exposure to wholesale/hyperscale data centers, where the demand for data centers outweighs to ability to build new supply.” “Digital Reality has been able to push rents on new leases up more than 80% in the past two years. While rents continue to march upward, the in place rents on expiring leases will continue to fall through 2028 — as such, rent renewal spreads should continue to expand, driving improve internal growth each year,” the bank added. Jefferies has a buy rating on both companies with a target price of $149.25 for Digital Reality and $910.86 for Equinix— or potential upside of 2% and 23% respectively. Other buy-rated stocks highlighted by the bank include: RWE in European utilities, EQT in U.S. energy and power, and Freeport-McMoRan as a beneficiary of rising copper demand given its use in data center cabling, connectors and more. — CNBC’s Michael Bloom contributed to this report.
